In this paper Lilien's (1982) hypothesis that sectoral shifts in employment
raise aggregate unemployment is tested using Canadian quarterly data. Lilien's
framework is extended to investigate regional labour market rigidities and to
distinguish between industry shifts that are correlated with changes in aggregate
activity, and those which are exogenous to the overall level of activity. The
robustness of the results to various changes in model specification is also
investigated. I find that in Canada exogenous shifts in employment between
sectors do not have a significant effect on the aggregate unemployment rate.